Venture Capital Trusts (VCT) investment hit the highest level in a decade raising £429 million in the last tax year.
According to trade body the Association of Investment Companies (AIC), the 2014-15 tax year was also the fourth highest amount raised in the 20 years since VCTs were started.
Although £420 million was raised in the previous tax year, that figure included £17.3 million of enhanced share buy backs which were abolished in April 2014.
VCTs now have £3.46 billion of managed funds – up from £3.22 billion in the year before.
AIC chief executive Ian Sayers suggested investment will continue to rise as a result of cash made available under pension freedoms, as many VCT offer a better return than other investments.
“The year has seen VCT become very popular with investors,” he said. “The pension changes announced in the budget are likely to widen the demand for VCTs, which is good news for the economy as the scheme provides critical finance to businesses and job creation.”
The record tax year for VCT investment was 2005-6, when £779 million was raised for startup and expanding small businesses.
VCT case studies
Typically, business angels invest in a wide range of businesses through VCTs.
Companies in the scheme include:
- Procam – Britain’s largest supplier of cameras and technical equipment to broadcasters. The company has more than 100 staff in London, Manchester, Edinburgh and Glasgow and turns over £10 million a year.
- DxS – A medical company that develops tests to identify how patients respond to cancer drugs. These tests help doctors to tailor treatments to the patient’s genetic make-up to ensure maximum effectiveness. The company was sold to a larger medical firm for more than £80 million, giving more than 12 times the investment value
- Secret Escapes – An online platform for luxury travel that helps hotels increase occupancy rates by selling empty rooms at a discount to members. VCT cash injected into the business helped expand the member base and attract more hotels to sell rooms through the platform
VCT are tax-effective schemes that offer 30% income tax relief on investments of up to £200,000 in a tax year, providing the shares are held for at least five years.
No income tax is paid on any dividends from a VCT and no capital gains tax is due on any profits on the sale of VCT shares.